Saving: putting money away for an event or an item within the next 5 years
Investing: putting money away for the future, 5 or more years away
With that said, let’s look at how much you should be saving. As always, the answer to a question like this depends on where you are in life and in finances. Let’s say you are
a. in debt and/or living paycheck to paycheck: save just enough to have a small emergency fund and then concentrate on getting out of debt. You shouldn’t be doing any investing at this point.
b. doing okay, just have a car payment and a few student loans: You are still in debt, so get out of debt (everything except your mortgage), then save a 3-6 month emergency fund.
c. just got out of debt!: YEAY! Good for you! Now, before you begin investing, make sure you have saved an emergency fund of 3-6 months of expenses.
d. I’m out of debt and I have my emergency fund: Sweet! You are really ready to start saving and investing. This is the time when you can start saving for a car or house (remember, within 5 years is saving). In addition to that, your goal should be to put 15% of your income into retirement investments. Can’t afford 15% now? That’s okay! Do what you can with the goal of building to 15% as soon as you can.